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More Robust Commercial Real Estate Recovery Projected for 2013

10/18/2012 | By Carisa Chappell

An improving picture in the jobs market coupled with limited new construction is expected to boost the commercial real estate recovery in the United States in 2013, according to survey results released Oct. 18 on emerging trends in real estate by consulting firm PwC and the Urban Land Institute (ULI).

The report indicated that there is wide-ranging optimism about the health of the commercial real estate market in 2013.

"Survey results are better than they were in 2012," said Stephen Blank, ULI's senior resident fellow for real estate finance. "Overall, 45 out of 51 markets scored better than they did last year."

Respondents, that included investors, developers, lenders and consultants, said market dynamics should lead to gains in leasing, rental rates and pricing for all real estate sectors in 2013, despite the uncertain economic climate. Newly added jobs are expected to increase absorption and push down vacancy rates, especially in the office, industrial and retail sectors.

"This is our recovery. It's been kind of at a turtle's pace, but it's definitely happening," said Jonathan Miller, author of the report.

Survey respondents noted that the demand for apartments should remain strong, even as new construction ramps up and the housing sector begins its own recovery. Improving fundamentals in the multifamily sector should help grow rents and net operating incomes, building confidence about sustained growth and strengthening recent appreciation, according to the report.

As the outlook for commercial real estate continues to improve in 2013, Mitch Roschelle, partner and U.S. real estate advisory practice leader with PwC, said concerns about other assets classes could lead to increasing investment in commercial real estate. Specifically, returns and stability could entice investors to put their money in commercial real estate.

In the survey of approximately 900 commercial real estate experts, PwC and ULI found that investors are suggesting that they will be willing to take on more risk in their portfolios in 2013 to gain greater yields. That will mean more investment and interest in secondary and tertiary markets outside of strongholds such as New York and San Francisco.

"Those who are willing to rethink their expectations and adapt to market realities are expected to come out ahead," said Blank.

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